Security Conglomerates are Dying

By: John Honovich, Published on Dec 11, 2012

If you want to pretend to be a financial expert in security, just pontificate about the impending wave of acquisitions and nod knowingly about the wave of consolidations poised to sweep the industry. Repeat this year after year to build your credibility among the security illuminati.

This will work perfectly except that it is completely wrong and fails to come through every year, leaving these 'experts' promising next year will finally be it.

The reality is the opposite is happening, with conglomerates losing more power each year. Equally importantly, this trend will most certainly continue over the next decade.

Instead of seeing a rash of acquisitions, we are much more likely to see more break ups like Tyco/ADT and the recent surprise Ingersol Rand multi-billion security spin-out.

Historically, the case for security conglomerates was grounded in two theories:

  • The large brand and channel infrastructure of the conglomerate enabled much greater reach, higher revenues and efficiencies in selling across the globe.
  • The larger size of conglomerates reduced general and administrative costs as they could be pooled across broader, bigger organizations.

Product quality and innovation were always secondary concerns. So long as products were average, the greater brand and organizational power of the conglomerate would allow it to succeed. Plus, the conglomerate could go out and buy small innovative companies to periodically refresh its product portfolio.

Acquisitions Miserable

However, for the last 5 years, acquisitions have been miserable. Looking at them, the pattern is clearly small struggling companies getting acquired for pennies on the dollar, with many in the weak video analytic and PSIM segments.

Equally importantly, look at who has not been acquired. None of the top tier VMS nor IP camera companies have been acquired - not Milestone, not Genetec, not Exacq, not Avigilon, not Axis, not Mobotix, not Arecont, etc., etc.

Why Acquisitions Have Been So Weak

Get Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

The security conglomerates track record shows they are focused on buying companies cheaply (relative to the target's revenue) and not spend much overall (typically $50 million USD or less).

Unfortunately for the conglomerates, the successful new entrants have zoomed past those levels and typically want valuations in the $200+ million range. The conglomerates either cannot or will not pay yet they are unable to stop the incursions into their markets as the new entrants continue to steal significant share away from incumbents.

Conglomerates Are Not Needed

Once upon a time, a conglomerate could successfully argue that new entrants with novel technology needed the big company to get the product to market and ramp up sales.

The hard truth is that the last 5 years have proved that this is no longer the case. All of the top growing IP video entrants are past $50 million revenue and a few passed $100 million, without the help of a conglomerate. Plus, most of the new entrants are profitable and have access to robust private investment options, so do not need the conglomerate to be a 'bank'.

The only time the conglomerate is truly needed is for security startups that are going to fail. In these cases, the conglomerate gets a cheap price for an essentially defective product, which further hurts their competitive positioning.

Driving Force - the Internet

The Internet makes it radically cheaper for new entrants to get their name out and communicate with prospects across the world. The physical infrastructure of the traditional channel - legions of sales reps to push the word out literally door to door - is far less critical. Sales is still vital but the Internet is a force multiplier that allows one or a few sales people at a new entrant to be extremely more powerful than they could have been just a decade ago.

Products Becoming More Powerful

In the past, people could rightfully argue that, when it came to financial success, product performance / power was secondary to brand and channel. Today, that is not the case. The top companies in IP video are overwhelmingly companies that offer the most value (whether because they are the best overall products - like an Axis or a Genetec - or they offer the best overall price/performance - like an Arecont or Avigilon). This is not an accident but a shift in how companies market and how users are able to find products. This puts security conglomerate in more and more trouble.

The Future

We expect specialist companies who drive innovation, whether in quality or low cost, to continue to take market share at the expense of conglomerates. We do not see any solution for the conglomerates to fight back. They are largely incapable of beating them on quality, nor buying them at the premiums they can demand. While some acquisitions will always occur, the days of conglomerates buying out major innovators and reaping great rewards are drawing fast to a close. Instead, look for more conglomerate break ups as they attempt to be agiler and product focused to compete in this new world.

Comments : Members only. Login. or Join.

Related Reports

Qognify Dropping Seetec and OnSSI Brands on Mar 01, 2019
Qognify is dropping both the Seetec and OnSSI brands, just over 2 months after acquiring OnSSI / Seetec and a week after sweeping cuts to the...
Pelco Sold Off, Now Independent on May 28, 2019
Pelco has been sold off by Schneider Electric, completing Schneider's terrible tenure, but giving Pelco a chance at life. IPVM spoke with...
Securadyne CEO: IPVM 'Entertaining For An Ignorant Few' on Apr 16, 2019
Securadyne's CEO Carey Boethel is unhappy with IPVM's report - Failed Integrator Rollup, Securadyne Sells to Guard Giant Allied. Indeed, he...
OpenALPR Doubles Prices on Jun 06, 2019
There is no 'race to the bottom' in cloud / AI video surveillance. In May, Verkada increased their prices. Now, OpenALPR is doing the same with a...
Avigilon President Henderson Is Out on Jul 09, 2019
Avigilon's President and COO James Henderson is out, abruptly, after a remarkable ascension over the past 8 years, Motorola VP Jack Molloy has...
Milestone Has Problems on Oct 01, 2019
Milestone has problems. While the company previously excelled in the shift to IP cameras, as IP has matured and competitive differentiation has...
Struggling Arcules Changes Chief Revenue Officer on Oct 29, 2019
Canon / Milestone spinout Arcules has struggled, now changing their Chief Revenue Officer, just a year after he came on board. The issue is not...
ADT Stock Surges - "Leading The Commercial Space" on Nov 15, 2019
Don't call it comeback... but maybe call it a commercial provider. ADT, whose stock dropped by as much as 2/3rds since IPOing in 2018, has now...
Resideo CEO To Step Down on Dec 03, 2019
Resideo's CEO, Mike Nefkins, is stepping down, just 18 months after being brought in to lead the now plagued spin-out. Inside this note, we...
Pelco Is "Bringin Blue Back" on Dec 17, 2019
Pelco is "BRINGIN' BLUE BACK", according to Pelco's new CEO Kurt Takahashi’s presentation at the Imperial Capital Security Investor...

Most Recent Industry Reports

Hazardous & Explosion Proof Access Control Tutorial on Feb 27, 2020
Controlling access to hazardous environments requires equipment meeting specific ratings that certify they will not start fires or will not...
Motorola / Avigilon Drops ISC West on Feb 26, 2020
Motorola Solutions has pulled out of ISC West 2020 effective immediately, because of coronavirus concerns, IPVM has learned. This is done amidst...
Cancel or Not? Industry Split Over ISC West on Feb 26, 2020
The industry is split, polarized, over whether ISC West 2020 should run or be canceled. New IPVM survey results of 400+ respondents show heated...
Coronavirus Hits Sony, Bosch Says Switch on Feb 26, 2020
Sony's fall in video surveillance has been severe over the past decade. Now, they may be done. In this note, we examine Bosch's new...
Video Surveillance Cameras 101 on Feb 25, 2020
Cameras come in many shapes, sizes and specifications. This 101 examines the basics of cameras and features used in 2020. In this report, we...
Favorite Video Analytic Manufacturers 2020 on Feb 25, 2020
Video analytics is now as hot as ever, driven by the excitement of advancing deep learning offers. But what are actually integrator's...
Latest London Police Facial Recognition Suffers Serious Issues on Feb 24, 2020
On February 20, IPVM visited another live face rec deployment by London police, but this time the system was thwarted by technical problems and...
Masks Cause Major Facial Recognition Problems on Feb 24, 2020
Coronavirus is spurring an increase in the use of medical masks, which new IPVM test results show cause major problems for facial recognition...
Every VMS Will Become a VSaaS on Feb 21, 2020
VMS is ending. Soon every VMS will be a VSaaS. Competitive dynamics will be redrawn. What does this mean? VMS Historically...
Video Surveillance 101 Course - Last Chance on Feb 20, 2020
This is the last chance to join IPVM's first Video Surveillance 101 course, designed to help those new to the industry to quickly understand the...